Aastha Mehta, GNLU, Gandhinagar
Before presenting the contents of the paper in a cursory manner in the introduction, it would be correct to for the researcher to provide how researcher has approached the topic. The scheme of the paper would indicate that for any section of the topic, researcher has firstly laid down the position of law via the help of statutes, case laws and commentaries of well recognized authors on the subject, than researcher move to any conflicting opinion on the same legal position and try to bring in where the disagreement or the true grey areas arise, and then lastly researcher provide her stand, the argument which researcher favor the most wherever required and substantiate the same by reasons especially looking at a point from the lens of Indian administrative scenario. This would be how issues will be dealt with in different sections of the paper. During the course of the paper, researcher has shown which argument is best suited to Indian administrative law.
The first section which is a general overview opens the door to the topic, touching upon various introductory elements necessary to understand the concept in totality. It talks about the historical aspect of this topic, the various positions when it came to crown’s liability in England and how far was it accepted in India. It also gives opinions of various authors as to how the contractual liability of state was looked at in England. Contracts have been previously the domain of private law, wherein people for business purposes and for their convenience entered into contracts which could be legally enforceable in court of law, but with encroachment of state into various public activities, even government began to enter into contracts, and therefore the first section also deals with this aspect as to why liability of state became essential to determine, especially from the point of view of administrative law. It also gives a short account of academician’s arguments on whether strict liability on the state for their contractual obligations should be attributed or not. While stating researcher’s view, researcher has favored the view that privileges and liabilities need to go hand in hand for the state in contractual sphere as well.
The second section, deals with the constitutional provisions which have been very wisely engrafted in the constitution which governs the procedural aspects of how government can make contracts. Use of case laws has further clarified the position in this regard. It also shows how the form prescribed and mandatory requirements of Article 299 have to be followed in order to put the liability of the contracts on the state. At various points, case laws have also relied on Indian Contract Act (eg.Section 70) for interpretation of constitutional articles. Researcher personally has supported the view that mere form of the contract should not be the basis for rendering the contract unenforceable. The section also deals with implied contracts, wherein Supreme Court has at various occasions has also allowed contracts which were orally made by governmental officials to be enforceable in order to give the rights of the other non-governmental party.
The third section of the paper, deals with how constitutional provisions, administrative law get interlinked and as to how administrative law doctrines have been used in governmental contracts. It primarily deals with two doctrines: namely doctrine of legitimate expectations and doctrine of executive necessity, which are always studies under the branch of administrative law. Courts have often read these doctrines, and cases laws and commentaries which have been given in the section indicates that even in absence of any particular law or statute to that effect, administrative law has always come to the rescue of the private parties, when the government has tried to rescind away from their contractual obligations, which makes these two doctrines especially a safeguard for those private parties. Researcher has also agreed completely with the interpretation given by courts however, to be precise, researcher has nowhere agreed that these two doctrines should be used blindly by the courts to impose liability on the state, and credibility of the claims of the private party should also be viewed carefully, since we do not need a government which is bogged down by contractual liabilities on every occasion, that the governing of the state suffers.
Lastly, researcher has made an attempt, to introduce international jurisprudence on the contractual liability of the state in the international arena. It discusses, ICSID and also ILC articles on state responsibility, and how breach by a state owned agency would be imputed to the state, and therefore state is held liable in contractual matters with other states. Since contract between two foreign individuals is the arena outside the scope of the paper it has not been touched upon. Though the section is very brief, it attempts to draw attention to the unchartered areas, where international administrative law can be applied, which is again a growing a field, due to mushroom growth of international organization, international tribunals etc..
General Overview of the Concept
The roots of modern concept of contractual liability of state had its early origin in England in the form of the maxim “Rex non potest peccare” which meant that “King can do no wrong”. This maxim has been interpreted differently by academicians wherein some are of the following opinion “Besides the attribute of sovereignty, the law also ascribes to the king in his political capacity, absolute perfection. The king can do no wrong is an ancient and fundamental maxim ((Sir William Blackstone et al. Commentaries on Laws of England: In four books; with an analysis of the work Volume 1 (W.E. Dean, 1840,University of California) 184)).” Further it was believed that King was incapable of doing any wrong, but even of thinking a wrong; he can never mean to do an improper thing; in his no folly or weakness ((Ibid, p.185)). Whereas while seeing from administrative purpose, there was another interpretation, which is more in consonance in with the idea of providing relief to aggrieved citizens which is given by Wade, “It is fundamental to the rule of law that the Crown, like other public authorities, should bear its fair share of legal liability and be answerable for wrongs done to its subjects. The immense expansion of governmental activity from the latter part of nineteenth century onwards made it intolerable for the government, in the name of the crown, to enjoy exemption from the ordinary law ((Wade & Forsyth, Administrative Law 10th Edition Oxford University Press, USA (2009) 694)).”
However, in England, there were practical problems for enforcement of rights against the king, since there was no human agency to enforce law against the king, and he could not be sued in his own courts without his consent ((C.K Thakker, Administrative Law 2nd Edition, Eastern Book Company, Lucknow (2010)1067)). This would also lead to problems for the citizens, since they had no proper forum to address their problems against the king. The Crown proceedings Act 1947 abolished this rule from Britain. In India, this doctrine was never recognized, even during the British rule.
Before analyzing the concept of contractual liability of state, it would be prudent to understand what the liability is all about. One of the major contributors in growth of administrative law has been the myriad, ever-increasing and plethora of state activities, which state undertakes for the fulfillment of the welfare of the people. A modern state in order to achieve the tasks set before it has to necessarily enter into contractual relations with persons ((N.K Jayakumar, Administartive Law PHI Learning Pvt Ltd. India (2005) 125))and also with companies and other organizations. Contractual liability of State, is arises when the rights of the government, and right of an individual are balanced on the same plane. Since state has administrative powers also and undertakes many contracts for different purposes, there is a need for contractual liability of state to be viewed differently from contract between two private individuals. However, it would be unfair and harmful for a State to have absolute immunity when it comes to contractual liability, since the private individuals will be placed at a lower bargaining position, which will invariably lead to the state authorities abusing their superior position in contractual relations. So to avoid this abuse of power by state authorities, even state is subject to same rights, duties and liabilities.
Drawing from the same point, as to how abuse of state should be controlled in the realm of administrative law. Author Jody Freeman is of the opinion that importation of contract principles into the regulatory arena, can enhance accountability ((Jody Freeman, “The Contracting state” Florida State University Law Review 155(2000) 201 Available at http://www.constitution.org/ad_state/freeman2.htm (accessed on 16 March 2014).))and she simultaneously propagates holding state strictly liable for their contractual part/performance, but contending this another author declines this approach of having rigid system, would lead to breaking down of the flexibility required in the administrative processes ((Mark Siendenfeld “An apology for Administrative law in the Contracting state” Florida State University Law Review Vo.28:215 p.216 Available at http://www.law.fsu.edu/journals/lawreview/downloads/281/Seidenfeld2.pdf (accessed on 16 March 2014).))which is highly desirable looking at the functioning of the state’s executive wing which will enter into contracts. Both these authors are completely right in their own perspectives, but the fact remains in India, due to different bureaucratic problems of redtapism, problems of inefficiency and lack of proper infrastructure to ensure contracts are negotiated and implemented by considering both the urgency and needs of both the contractual parties, the system should be mixed having both strict liability when required and leeway or discretionary powers given to state, which are again subject to judicial review under Article 13, and this would prove to be better, if no one approach is strictly incorporated into legal system. On the same principle of providing certain administrative freedom, some privileges are given to the state, in respect of their liabilities, which is justified on the grounds of executive necessity and public interest ((S.P.Sathe, Administrative Law, 7th Edition, Lexis Nexis Buttersworth, New Delhi (2004)382)).
The next section deals with constitutional provisions, which gives us a window into the intention and purpose with which constitutional drafters incorporated specific articles to regulate the contractual transactions of state, and then from their we link it to how constitutional provisions supplement the administrative law principles on contractual liability of state. There is no denying that there is a substantial overlap of constitutional law with administrative law on this concept, however by studying both these perspectives a holistic idea can be formulated on this topic.
Constitution makers have provided with express provisions governing contractual liability of the state, by way of Article 294, 298, 299 and 300. Article 298 gives the executive (Union and State) power to carry trade or business, and the power of acquisition, holding and disposal of property and also of making contracts for any purpose. Article 299 is the base which provides for how Governmental contracts are to be executed, and is the most important article when it comes to liability of state. Article 299 reads as follows:
“(1) All contracts made in the exercise of executive power of the union or a state shall be expressed to be made by the President or by the Governor of the State as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such person and in such manner as he may direct or authorize.
(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purpose of any enactment relating to Government of India hereto before in force , nor shall any such contract or assurance on behalf of any of them be personally liable in respect thereof”.
So for a government contract to be valid it must fulfill all these conditions , that contract has to be expressed in the name of President or Governor (as the case maybe) and it has to be executed by person authorized by President and Governor, however they themselves are not personally liable for the contract ((State of Punjab v. Om Prakash Baldev Krishan AIR 1988 SC 2149 ; Union of India v. A.L Rallia Ram AIR 1963 SC 1685)). The problem of administrative law comes when departmental authorities do not comply with these criteria, due to inertia and ignorance ((Swati Rao, Contractual Liability of State in India: An Analysis Available at http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=a4122e98-7362-4e05-87ce-bed7af3b9b2f&txtsearch=Subject:%20contract (accessed on 6th March, 2014).))and when these formal requirements are not followed then contract suffers from defect in form. It would be correct to clear herein that provisions of Article 299(1) are mandatory and must be complied with it ((Bhikaji Jaipuria v. Union of India AIR 1962 SC 113)). The same case of Bhikaji Jaipuira also says that the intention of the Constitution makers shows that this Section 175(3) of Government of India At 1935 (which is pari materia with this article) was enacted so that state is not saddled with liability for unauthorized contracts and with the object that contracts must show on their face that they have been made on behalf of the state. This provision is for the public interest and invests public servants to bind the state by contractual obligations ((Ibid pg.113,119)).
This is the major point, which is important to administrative law. The ratio behind this case is casts an obligation on the state to comply with requirements of Article 299, and a duty on people not to attach liability on the government. If contract expressly has a technical defect, for example it was never entered into by any authorized agency, or was not in accordance with governmental norms, the government will have to deal with frivolous allegations from the citizens for contracts which they never contracted into and which never existed to their knowledge also. But does this approach be to escapist from the stand point of the government, that under the shield of non-compliance with article 299, can genuine causes of citizens be given a go-by.
Fortunately this is not the case, when the Supreme Court in Chatturbhuj Vithaldas v. Moreshwar Parashram ((AIR 1954 SC 236))in case of non-compliance with Article 299, a suit cannot be filed against the government as the contract would not be enforceable but a government can accept liability by ratifying the contract. This ratification would render the governmental authorities to be liable and responsible to the other party to the contract regarding their obligations under the contract, and make the other party capable of enforcing their legal rights against the government. But there is conflicting decision which lays down the principle that if Article 299 is not followed, then there is no contract in the eyes of the law, so question of ratification does not arise ((Mulamchand v. State of M.P AIR 1968 SC 1218)).
Accordingly, if we see which legal position is favorable in the context of smooth administration of the state, than in my opinion the ratio laid down in Chatturbhuj is more of in consonance with balancing rights of both the parties. It is correct that constitutional provisions need to be followed, but if there is genuine cause before the court wherein the person under bonafide impression of it being a governmental contract enters into a contract, than government cannot take protection and leave the citizen helpless, especially if the other party, be it an individual or a company has started performing his part of the obligations.
This brings us to the topic of quasi-contractual liability which is imposed on the state under Section 70 of Indian Contract Act. Chatturbhuj decision, also relies on this section and court for providing compensation to private parties has gone into Section 70 and has attached contractual liability to the government ((supra 13 at 236,243)). Section 70 says as follows “Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the later is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.” If conditions of Section 70 are fulfilled, quasi-contractual liability can be attached to government agency or department, and this is one of the ways where Supreme Court has reduced chances of their being injustice meted to the citizens on account of administrative faults, and citizen’s rights are properly protected. Section 70 also prevents unjust enrichment and contractual provisions supplements this constitutional provisions ((State of West Bengal v. B.K Mondal AIR 1962 SC 779)). The reason for enacting Article 299 of the Constitution of India is that in order to bind a Government, there should be a specific procedure enabling the agents of the Government to make contracts. The public funds cannot be placed in jeopardy by contracts made by unspecified public servants without express sanction of the law. It is a provision made to save the State from spurious claims made on the strength of unauthorized contracts ((Ibid 779)). If one has to act on this constitutional intention, it indicates that Article 299 is a procedural article and does not give any substantive rights to any person claiming under the governmental contracts. The substantive rights are covered under ordinary contract law and have been shaped up judicial decisions.
One of the questions which have been discussed also includes whether article 299 leaves any scope for implied contract or not. In K.P Chowdhury v. State of M.P ((AIR 1967 SC 203))Supreme Court by adopting a rigid view laid down the follows “In view of the provisions of Article299 (1) there is no scope for any implied contract. Thus no contract can be implied under this Article. If the contract between the Government and a person is not incompliance with Article 299(1), it would be no contract at all and would not be enforceable as a contract either by the Government or by the person.” The rationale behind this is was to render effective the intention and role of Article 299, and to see to it that more and more liability does not get attached to governmental departments. However since governmental agencies at various levels of their functioning enter into government contracts for many kinds with private parties, organizations and companies, the can be a scope of some relaxing when it comes to rigid stand, and therefore along with giving effect to the letter of Article 299, minute and technical aspects of a particular contract should be done away with when it comes to imposing liability on the state. And this was the position before this case when Bose J. in Chatturbhuj said “it would, in our opinion, be disastrous to hold that the hundreds of Government officers who have daily, to enter into a variety of contracts, often of a petty nature, and sometimes in an emergency, cannot contract orally or through correspondence and that every petty contract must be effected by a ponderous legal document couched in a particular form . . .” This position was however taken prior to 1967, but still has a valid point to make from administrative purposes, since if flexibility is provided to administration, it would ensure that valuable time of the government is not taken away in complying with technicalities, and more productive use of time is made.
Before concluding, a look at certain newer judgments would further add to the discussions, wherein certain new facets of contractual liability have come up, making it interesting for an academic discussion. In the recent judgment of Punjab and Haryana High court in Jawahar Singh & others v. State of Punjab have detailed previous decisions on this point in detail and have held “that the noting recorded in the official files by the officers of the Government at different levels and even the Ministers do not become decision of the Government unless the same is sanctified and acted upon by issuing an order in the name of the President or Governor, as the case may, authenticated in the manner provided in Articles 77(2) and 166(2) and is communicated to the affected persons. The notings and/or decisions recorded in the file do not confer any right or adversely affect the right of any person and the same can neither be challenged in a court nor made basis for seeking relief ((CWP No. 6476 of 1987)).” This shows that even if official noting, even though an evidence of the intention of the government to enter into contract, will not attach any liability on state since, the form prescribed in article 299 is not complied with. According to me, 2012 decision of Supreme Court (3 Judge Bench) is a very balanced decision and personally I feel this view is strong to show how rights of government and private individual both depend on equity. The case dealt whether can the contract of government be enforced once the circumstances have changed after promising the other party, the court laid down the following “When the Government is able to show that in view of the facts as have transpired since the making of the promise, public interest would be prejudiced if the Government were required to carry out the promise, the Court would have to balance the public interest in the Government carrying out a promise made to a citizen which has induced the citizen to act upon it and alter his position and the public interest likely to suffer if the promise were required to be carried out by the Government and determine which way the equity lies. It would not be enough for the Government just to say that public interest requires that the Government should not be compelled to carry out the promise or that the public interest would suffer if the Government were required to honour it ((State of Haryana v. M/s Mahabir Vegetable oil Pvt.Ltd. 2011 (3) SCC 778)).”
Concluding, constitutionally Supreme Court has always tried to balance rights of citizens and government, along with trying to uphold form and intention of Article 299. This section of the paper would be further clarified when administrative aspects are interlinked with this and next section deals with the same.
Administrative Law perspective
In India, when it comes to administrative law, judiciary has done a remarkable role by reading well-established principles of administrative law into contractual sphere of government in absence of any statute to that effect. In this section I deal with two concepts of administrative law, which have been used by courts in the field of contractual liability of state. First is doctrines of legitimate expectations and the other is executive necessity and how it relates to state’s contractual liability. It is well established that public authorities while dealing with individuals have to follow highest principles of natural justice, and any executive action which is arbitrary, capricious and unreasonable is liable to be struck down by the courts.
While dealing with doctrine of legitimate expectations, the courts have been very liberal in interpreting its scope especially for governmental contracts. This doctrine focuses on predictability, regularity and certainty in government’s dealing with public ((De Smith’s Judicial Review 6th edition, Lord Woolf, Jeffrey Jowell, Andrew Lesuer, desmith (para 12-001) Sweet & Maxwell, UK)). Comprehensive and workable function of legitimate expectation is given by Lord Fraser as follows “when a public authority has promised to follow a certain procedure, it is in the interest of good administration that it should act fairly and should implement its promise, so long as implementation does not interfere with its statutory duty ((Attorney General of Hong Kong v. Ng Yuen Shiu,  2 AC 629)).” The doctrine basically has been established on principles of reasonableness and natural justice ((Wade, Administrative Law, (2005) 500)). When linked to governmental liability of state, Indian Supreme Court while interpreting railway contracts and their rules applied doctrine of legitimate expectations, discussed this doctrine in details especially in the context of contractual sphere and observed as follows ‘Of late the doctrine of legitimate expectation is being pressed into service in many cases particularly in contractual sphere while canvassing the implications underlying the administrative law ((UOI v. Hindustan Development Corporation 1994 AIR 988; 1993 SCR (3) 128)).” By incorporating doctrine of legitimate expectations, non-governmental parties can have a safeguard against change in conduct of the government which they followed in previous practice and which would have raised legitimate expectations in the minds of the other contracting party that the same practice would be used.
But the only limitation this doctrine would have is when the individual interest of a party is in conflict with the larger public interest, courts will invariably favor the public interest, and therefore a contracting party with the government has to succumb to the larger interest of the community, which is the primary duty of the state to fulfill. However, when it comes to public interest, which still remains an undefined term, courts have to be careful that uncontrolled power is not given to the state, wherein they can wash away their contractual obligations at any time and not take the shelter of public interest to change their practice, putting the other party at a disadvantage. Directly related to this is the case of Food Corporation of India v. Kamdhenu Cattle Feed Industries ((AIR 1993 SC 1601))wherein the court said that even in contractual sphere, state has to act in consonance with Article 14 and public law cannot have a unfettered discretion. The Supreme Court has also seen to it that non-governmental contracting party is not discriminated when it comes to their interests and interest projected by the government under the name of public interest. I personally not only agree with this view but also endorse this view especially for small governmental contracts, wherein no big industrial house or mega-scale is budget is involved, and it is here where the other party, being a small contractor or trader would need help from law to have a chance against technicalities and other executive actions during the time when contract is in subsistence.
Another doctrine which is extremely essential for viewing contractual liability is doctrine of executive necessity, which is also capable of being abused by governmental authorities. Executive necessity is the principle which states that although Government can be bound through its officers by a contract similar to anyone else is liable to pay damages; Government is not competent to fetter its future executive action, which must necessarily be determined by the needs of the community when the question arises. The essence of the doctrine therefore is that Government cannot hamper the freedom of the future actions of Parliament in matters which concern the welfare of the State ((Navajyoti Samanta “Contractual Liability of Government” Available at file:///C:/Users/ASHTHA/Downloads/SSRN-id2145139%20(2).pdf (accessed on 16 March, 2014).)).
Therefore, public authorities generally take the defense of executive necessity for rescinding a contract. The plea would be that contractual obligations cannot bind the future conduct of the government especially when there are governmental reasons which might affect future policies to govern.
There are two views on the question as to the applicability and scope of executive necessity to governmental contracts. Firstly, courts have always favored and tilted in favor the citizens when it comes to application of this doctrine, however there are certain authors and academicians who are of the opinion that executive necessary is used very rarely and therefore there is no requirement of strictly interpreting the doctrine and whenever invoked by the government, it should benefit the government and not the other parties.
Looking at the judicial approach the first case which establishes clear position on the liability of the Crown in England is Robertson v. Minister of Pensions (( 1 KB 227))where Denning J. laid down “Crown cannot escape by saying that estoppels do not bind the Crown for that doctrine has long been exploded. Nor can the Crown escape by pressing in aid the doctrine of executive necessity that is the doctrine that the crown cannot fetter its executive action”. Courts in number of cases ((Abdul Hassan Khan v. State of Maharashtra 2007 (2) CTLJ 496 Bom ; Sterling Computers Ltd. v. M&N Publications Ltd. and Ors. 1993 SCR (1) 81; UOI v. M/s Indo-Afghan Agencies Ltd. 1968 SCR (2) 366))have always showed that executive should not be given unfettered discretion on the ground of executive necessity and refuse to change their stance from already formed contract with a private person. ‘Executive necessity, if any, does not release the Government from honoring its solemn promises relying on which citizens have acted to their detriment ((UOI v. M/s Indo-Afghan Agencies Ltd. 1968 SCR (2) 366))is the principle tenet which courts have followed in India. So when a contract, being a promise, government cannot solely rely on the fact that due to change in policy or an over-riding public interest, it cannot refuse the citizens what they are obliged to get under the contract. However, I strongly recommend that genuineness of public action, is something which would decisive as to whether or not a particular contract is capable of being rescinded by the government, and whether it would justified to take away the contractual rights of the private individuals. If there is a reasonable requirement, wherein the rights of the individual should make way for the rights of the community, it has to be seen by courts as to till what extent can the rights of a private person arising under the contract can actually be abrogated and is their way to still hold the government liable, partially or in some other way of granting damages or restitution of benefits obtained.
In specific when awarding contracts for public works and giving tenders the courts have said “But in normal course some rules must exist to regulate the selection of persons for awarding contracts. In such matters always a defense cannot be entertained that contract has been awarded without observing the well settled norms and rules prescribed, on basis of the doctrine of “executive necessity” the norms and procedures prescribed by Government and indicated by Courts have to be more strictly followed while awarding contracts which have along with a commercial element a public purpose as in the present case ((Sterling Computers Ltd. v. M&N Publications Ltd. 1993 SCR (1) 81)).” This is indicative of the fact that governments should be very sure when relying on doctrine of executive necessity when they deal with their contracts with private individuals, and should have a strong reason behind not fulfilling their contract.
The second view point is given by authors, majority of them foreign writers say that executive necessity is used very rarely and usually governments fulfill their obligations. An author like Nicholas Seddon ((Nicholas Seddon “Government Contracts: Federal, State and Local” 4th edition, Federation Press, Sydney (2009) 297)), an Australian author is of the view that even if governmental contracts are criticized on the ground of it attracting executive necessity, but in ordinary government contracts, this doctrine is irrelevant, which is again endorsed by Bryan Horrigan ((Government Law & Policy: Commercial Aspects Federation Press, Sydney (1998)232 (Queensland University of Technology. Centre for Commercial and Property Law, Queensland University of Technology. Research Concentration in Public Law).)), again an Australian author. But it is criticsed also by Peter Hogg ((Peter W. Hogg “The Doctrine of Executive Necessity in Law of Contract” (1970) 44 ALJ 154)), by saying “the doctrine that the Crown may not enter into a contract that would fetter its future executive action is intolerably vague.” According to me, seeing it from an Indian perspective, there is dearth of case laws on this subject wherein doctrine of executive necessity is raised by the government for not following its contractual obligations, and therefore practically, the first view seems to be the position in India. The second view, which seeks to impose anyhow the liability on the Crown, which is the government in Indian context, is also a sound view which is adopted by courts in India, but imposing too much of strict liability will take away the freedom of the governments to govern for future, and therefore while dealing with executive necessity as a ground of defense, courts should decide from case to case basis and see if the rights of the community can be balanced against the need for the contracting party to enforce its own rights. In India, wherein there are multitude of contracts being entered into everyday, every aspect of the contract should be analyzed carefully so that the contract would not lead to any future conflict with policy decisions or affect the rights of the community.
Concluding, when seen from administrative law angle, contractual liability of state is always addressed from the point of view of the citizens, who contract with the government, since administrative law has always had its genesis from the principles of natural justice and rule of law which both aim at dimunition of arbitrary exercise of powers. Both the doctrines addressed above show how administrative law tackles those areas wherein constitutional law has no answers, and gives solutions to practical situations which might arise.
International jurisprudence on contractual liability of state
Thought the ambit of this article is limited to the scope of Indian law as to the contractual liability of state, but for the purpose of introducing some fresh flavor into the paper, I have in brief dealt with the contractual liability of the state in international arena, with special focus on international investment contracts and how administration of countries have to see to proper functioning of the contractual relations between various states and state agencies.
State contract is when a state owned entities like organizations and various corporations, which have separate legal identity of their own enter into foreign nationals and other foreign entities, for varied utilities like hydro-electric power, natural gas, for construction, technical know-how etc. Generally when a state owned agency breaches a contract, the responsibility of the contract is attributed to the state, and therefore arises the concept of state responsibility for contractual relations. Generally such disputes especially for contracts wherein there is foreign investment is involved would be adjudicated by ICSID i.e. International Centre for Settlement of Investment Disputes, and this would be forum wherein the aggrieved party can expect impartiality and independence instead of approaching the breaching party’s country courts ((Micheal Feit “Responsibility of State under International Law for the Breach of Contract committed by state owned entity” Berkeley Journal of International Law Volume 28 Issue 1 2010 143 Available at http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1379&context=bjil (accessed on 17 March, 2014).)).
There is also International Law Commission Articles on Responsibility of States for Internationally Wrongful Acts, also specifically attributing the responsibility of breach of contract to state in Article 4, 5 and 8. By all these the need for strong administration of contracts between states, wherein the implementation of contracts is followed up, the negotiation of contracts, the handling of breach issues are manifested so as to emphasize the need for executive’s strong role and vigilant contribution in this arena. Administrative law has been remodeled to suit the needs of upcoming contractual liability of state, especially contracts like procurement contracts, sale of goods contract, import-export contracts, and migration of laborers contracts etc. which were previously never recognized in local administrative law. Previously, when globalization had not affected the nations, contractual liability of state was governed by either routine courts, and with emergence of separate branch of administrative law, by the different administrative tribunals, but with advent of globalization, the situation has completely changed. Therefore, there is a break from the local conception of administrative law and the corresponding conception of sovereign states as the only actors in international public law, due to which natural and juridical persons are internationally authorized to sue States directly, without the intervention of their home states ((Bernando M. Cremades “State participation in International Arbitration” Available at http://www.cremades.com/pics/contenido/STATE_PARTICIPATION_IN_INTERNATIONAL_ARBITRATION.pdf (accessed on 17th March,2014).)).
Therefore in contractual matters, states have been directly acted against in international forums, and herein the liability of the state is adjudicated not according to the local administrative law but the treaties and international conventions, along with the terms of the state contract. An important part of global administrative law which has emerged is the introduction of clauses which protect the interest of private investors in a better manner against the powerful foreign state owned agencies, which is in consonance with the fact no agency, whether global or local, or can abuse the power given to it, and also the fact that states should act according to their obligations, since the repute of their country is also at stake when they enter into contracts with other states, which will in turn affect their standing in international financial institutions etc.
Concluding, this was a just a brief section, wherein I have opened the gates for further research into an area, which has not been explored enough especially from the realm of administrative law. I have just shown how state is directly held liable for their agencies, in the international law or their contractual liability.
In this paper I have shown the various perspectives of contractual liability of state: constitutional and administrative. Throughout the course of the essay, I have showed that for India, neither strict nor liberal approach is fit to be applied in all situations. Strict approach tends to take away discretion of the government, whereas liberal approach would be harmful for the rights of the private individuals.
With regard to constitutional aspect, first conclusion which I have made is Article 299 should not be construed so as to have a strict interpretation to it, wherein the form matter more than the intent. Article 299 should be seen as procedure, but wherein there are technical defects in the contract as to the requirements of the contract, citizens issues should be addressed accordingly, and they should not be left remediless. I have also come to the second conclusion, according to which ratification of the contract is one of the way in which interest of private parties can be protected. This would render government liable for the contract, which strictly does not deal with the requirements of Article 299. Third conclusion is that newer judgments have difference of opinion as to which approach of liability should be attached to state in contractual matters, however one point which is common for all cases is the fact that wherever possible the courts have mitigated the rigors of the difficulty which the private parties would face in case breach of contract. Lastly, I have strongly recommended the quasi contractual liability of the state wherein the state would have to make compensation to the other party in cases of breach of those benefits which they have already received under the contract.
In the section of administrative law, I have showed the link between the practical problems which occur in government contracts, by discussing principles of legitimate expectations and executive necessity. The first conclusion which I have reached when it comes to legitimate expectations is the necessity for a proper mechanism which has been given to us by our judiciary as to how government cannot change their practices and policies which have been so well established that people would reasonable expect the same for future conduct also. While discussing executive necessity, I have highlighted how executive necessity is rarely used in India, which can be evidenced from the lack of cases laws, but however courts have again favored the citizens even in this regard by holding that executive necessity has a limited scope and I have also agreed to the court’s reasoning and have justified the same through case laws. Throughout I have tried to show where the conflict of opinion lies and have given my opinion, which invariably favors the non-governmental party.
I have also touched upon the international position when it comes to state contracts, though I haven’t gone into details, it was incorporated in the main body for giving a new dimension to the paper.
- C.K Thakker, Administrative Law 2nd Edition, Eastern Book Company, Lucknow (2010)
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